Wanted: North Coast Distribution Rights in Arizona

The stage has been set for a classic Western shootout, but it’s not about Arizona horse rustlin’ — it’s about Arizona beer distributin’.

The showdown is over North Coast Brewing, which is attempting to switch from its current distributor, Crescent Crown Distributing, to Hensley Beverage Company.

North Coast, a California brand that has grown into 48 states, is claiming that Crescent Crown hasn’t adequately represented the brand throughout Arizona and is dedicating more attention to its other, 50-plus craft beer suppliers.

“We felt that Crescent Crown really wasn’t paying much attention to us and that we should take a look at doing business with another company,” said Doug Moody, the senior vice president of North Coast Brewing. “We thought it would make good sense to move to Hensley and let them work out the details on the buyout of the brand.”

Cases like these have become more common in recent years as the market for craft beer has picked up. Craft brewers have become more interested in having distributors sell their products more actively and are pushing in many states to amend laws that will allow them to more easily move between distributors whom they perceive will be more active behind their brands. Under most state regulatory frameworks, a brewer must prove that the distributor has consistently underperformed in order to move; what’s frequently at issue, however, is the definition of underperformance.

Crescent Crown said Moody’s claims are false, and it has filed its own lawsuit, against Hensley, claiming tortious interference with its business.

“In the last three years, our total craft business is up 33 percent,” said Joe Cotroneo, the senior vice president of Crescent. “Our North Coast business is outpacing that, up 75 percent.”

Crescent Crown sells 17 million cases of beer annually, about 10 percent of which is craft. An even smaller fraction — roughly 5,000 cases — comes from North Coast. Still, Controneo said the company refuses to part ways with the North Coast brand and claims the brewery has done a poor job of managing the business in Arizona.

“North Coast hasn’t spent any time or energy in Arizona,” he said.

Moody doesn’t disagree.

“My focus and my energy were in other areas,” he said. “That being said, it really wasn’t until I felt I had someone to manage that market that we decided to take another look at it more seriously.”

North Coast in Arizona

North Coast brand was originally distributed in Arizona with Little Guy distributing but in 2006, Crescent Crown acquired the wholesaler and its entire craft portfolio. At that time, Moody signed a transfer agreement, which granted Crescent Crown the right to distribute the brand. Moody later claimed Crescent Crown was delivered an entirely new contract; something Cotroneo said wasn’t the case.

“They didn’t even know that they had signed an agreement to transfer the rights,” he said.

Fast forward to October of 2011 when both Controneo and Moody said North Coast expressed a greater interest in building marketing plans, investing in a salesperson and supporting the brand with additional marketing dollars.

“They were finally going to bring resources to help us,” said Cotroneo.

More than a year passed and Cotroneo said he stopped hearing from North Coast. Not surprisingly, Moody told Brewbound a different story. He claims that Dennis Keller, North Coast Brewing’s Western sales manager, had a difficult time getting a callback from Crescent.

“We were going to be hiring someone and asked the Crescent Crown folks for a recommendation,” Moody said. “Dennis sent letters to three key people at Crescent Crown without a response.”

The Latest

In May, North Coast approached Crescent Crown about selling the distribution rights; something Controneo said caught him by surprise.

“It was supposed to be our first-ever market planning meeting,” he said. “When he [Keller] came in, he had nothing but legal jargon and a suggestion that we needed to move the brand.”

North Coast said that over the past two years it has interviewed potential wholesaler candidates in preparation for departure from Crescent Crown, and eventually approached Hensley about paying “fair market value” for the rights. Hensley confirmed to Brewbound that it has agreed, in principle, to purchase the rights should Crescent Crown decide to sell.

But for now, Crescent Crown isn’t budging.

“We buy and sell brands often,” said Controneo. “We are not a litigious group, but we have to make sure we are being treated fairly. We are a distributor that sells all kinds of beer and we will not have our reputation tarnished by a company that doesn’t have their act together. Shame on me, maybe I should have engaged them sooner, but they seemed quite intent not engaging with us for seven years.”

So where does that leave North Coast?

Moody said he will continue to fight for the North Coast distribution rights in Arizona but in the meantime will prepare to send beer to one of two last remaining states where North Coast beers are not currently sold, West Virginia, in 2014.